Where Have all the Real Estate Crowdfunding Platforms Gone?
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesWhere Have all the Real Estate Crowdfunding Platforms Gone?
3 Replies
- 1yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Quote from @Don Konipol:
I just did a very INFORMAL survey of real estate crowdfunding sites. I eliminated those platforms that are just a way for a single real estate syndicator to market their own deals - so I eliminated MY OWN site and those like it. I tried to keep the “universe” I looked at restricted to those sites set up for providing investors an opportunity to invest in a variety of different offerings.
Here’s the result: I identified 96 sites (platforms) that specialized in real estate crowd investing - though Reg D or Reg CF.
78 are no longer active/out of business
18 appear to be active
Of the 18, 5 appear to offer only investment in a fund they run, no individual properties to invest in.
Most industries consolidate over time. And many of those platforms focused on areas of real-estate that were hit hardest by the recent real-estate downturn: Office and multifamily.
The Real Estate Crowdfunding Review- Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes1yMakes sense. However, reading through your website, it appears that there are only one or two platforms that pass even an initial screening you set up. The way I read this is that while there are syndicators who meet stringent investment requirements, there have been few if any third parties who have been successful bringing private real estate investment opportunities “public” with anything resembling consistency. I find this VERY disappointing.
Quote from @Ian Ippolito:
Quote from @Don Konipol:
I just did a very INFORMAL survey of real estate crowdfunding sites. I eliminated those platforms that are just a way for a single real estate syndicator to market their own deals - so I eliminated MY OWN site and those like it. I tried to keep the “universe” I looked at restricted to those sites set up for providing investors an opportunity to invest in a variety of different offerings.
Here’s the result: I identified 96 sites (platforms) that specialized in real estate crowd investing - though Reg D or Reg CF.
78 are no longer active/out of business
18 appear to be active
Of the 18, 5 appear to offer only investment in a fund they run, no individual properties to invest in.
Most industries consolidate over time. And many of those platforms focused on areas of real-estate that were hit hardest by the recent real-estate downturn: Office and multifamily.
I’ve believe that while there are numerous reasons for this, most can be classified as either (1) the crowdfunding platform operates in such a way that doesn’t protect, benefit or optimize investor interests (platform fees excessive and added to sponsor fees, limited bankruptcy protection, non alignment of incentives, limited disclosure, etc.) and/or (2) the platform/site is heavy emphasis on “tech” and light emphasis on “finance”. The following is an actual example of the latter.
In 2018 I was contacted by an officer of PeerStreet wanting to enlist my services in helping them enter the commercial mortgage loan space ( they had done all residential and a few multi family loans at that point). The deal they offered was that I would originate a commercial mortgage loan, keep ALL the points (my three and their usual two) and keep the one percent (of principal) annual “asset management’ fee. I agreed.
The loan we mutually decided on was a $3 million loan secured by an office building in Ohio. We had originated the loan 12 months prior, it was maturing, and we would originate a new loan under new terms which PeerStreet would purchase from us immediately. I spent more than a few hours educating PeerStreet management as to why the loan amount should be no greater than $3 million.
A couple of days before closing PeerStreet informed me that they would close the loan in their own name. Since I was to still receive all the points and asset management fee I had no problem with this. My shock was after the loan closed and I received my fee (points). Instead of the $150,000 I was expecting PeerStreet wired $230,000 into my account. Turns out they decided to up the loan amount from $3 million to $4.6 million. It became obvious to me that they hadn’t understand even the basics of risk/reward as it related to commercial property investment/financing.
After the 12 months note was due the borrower was unable to refinance the larger $4.6 million amount, and eventually defaulted. Reading PeerStreet website at the time I was able to ascertain that their finance people were people with bachelor degrees in business, 0 - 2 years experience, and were being paid $65,000 - $70,000 per year. This is just not the experience or caliber of person needed to analyze and judge, and make investment decisions for hard money lending.
Ian, it appears you have just about “given up” on these third party platforms and emphasize direct engagement with the sponsor? - 1yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
Quote from @Don Konipol:
Makes sense. However, reading through your website, it appears that there are only one or two platforms that pass even an initial screening you set up. The way I read this is that while there are syndicators who meet stringent investment requirements, there have been few if any third parties who have been successful bringing private real estate investment opportunities “public” with anything resembling consistency. I find this VERY disappointing.Quote from @Ian Ippolito:
Quote from @Don Konipol:
I just did a very INFORMAL survey of real estate crowdfunding sites. I eliminated those platforms that are just a way for a single real estate syndicator to market their own deals - so I eliminated MY OWN site and those like it. I tried to keep the “universe” I looked at restricted to those sites set up for providing investors an opportunity to invest in a variety of different offerings.
Here’s the result: I identified 96 sites (platforms) that specialized in real estate crowd investing - though Reg D or Reg CF.
78 are no longer active/out of business
18 appear to be active
Of the 18, 5 appear to offer only investment in a fund they run, no individual properties to invest in.
Most industries consolidate over time. And many of those platforms focused on areas of real-estate that were hit hardest by the recent real-estate downturn: Office and multifamily.
I’ve believe that while there are numerous reasons for this, most can be classified as either (1) the crowdfunding platform operates in such a way that doesn’t protect, benefit or optimize investor interests (platform fees excessive and added to sponsor fees, limited bankruptcy protection, non alignment of incentives, limited disclosure, etc.) and/or (2) the platform/site is heavy emphasis on “tech” and light emphasis on “finance”. The following is an actual example of the latter.
In 2018 I was contacted by an officer of PeerStreet wanting to enlist my services in helping them enter the commercial mortgage loan space ( they had done all residential and a few multi family loans at that point). The deal they offered was that I would originate a commercial mortgage loan, keep ALL the points (my three and their usual two) and keep the one percent (of principal) annual “asset management’ fee. I agreed.
The loan we mutually decided on was a $3 million loan secured by an office building in Ohio. We had originated the loan 12 months prior, it was maturing, and we would originate a new loan under new terms which PeerStreet would purchase from us immediately. I spent more than a few hours educating PeerStreet management as to why the loan amount should be no greater than $3 million.
A couple of days before closing PeerStreet informed me that they would close the loan in their own name. Since I was to still receive all the points and asset management fee I had no problem with this. My shock was after the loan closed and I received my fee (points). Instead of the $150,000 I was expecting PeerStreet wired $230,000 into my account. Turns out they decided to up the loan amount from $3 million to $4.6 million. It became obvious to me that they hadn’t understand even the basics of risk/reward as it related to commercial property investment/financing.
After the 12 months note was due the borrower was unable to refinance the larger $4.6 million amount, and eventually defaulted. Reading PeerStreet website at the time I was able to ascertain that their finance people were people with bachelor degrees in business, 0 - 2 years experience, and were being paid $65,000 - $70,000 per year. This is just not the experience or caliber of person needed to analyze and judge, and make investment decisions for hard money lending.
Ian, it appears you have just about “given up” on these third party platforms and emphasize direct engagement with the sponsor?Hi Don, every investor has a different risk tolerance, set of financial goals and comes from a different financial situation. So something that looks great to one will look horrible to another and vice versa.
As a conservative investor, I generally want to see full real estate cycle experience with little to no money lost, high skin in the game, low leverage, fixed-rate financing and reasonable fees. And I'm not looking for the highest projected returns (and rather want to see safety features that reduce return but increase the chance of preservation of capital).
And occasionally there are sponsors like this that show up on the platforms. So I still continue to keep my eye on them.
And at the same time, many of those sponsors also find it very easy to raise capital from investors. And so many aren't on the platforms. So I do go direct to alot of them. And I also have my roster of favorite sponsors in that category who I invest in, repeatedly.
On the other hand, a more aggressive investor typically wants to see higher projected returns. And to get that it usually involves higher leverage, and some of the other things that I'm not interested in.
So for those types of investors, the 3rd party platforms can be a good source of potential deal flow.The Real Estate Crowdfunding Review
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